Corporate Services

An insolvency process that provides protection of the company where there is a prospect of saving the company’s business or providing a better result for creditors than liquidation.

What is the purpose of an Administration?

There are three main purposes of an Administration:

rescuing the company as a going concern, OR

achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), OR

realising property in order to make a distribution to one or more secured or preferential creditors

How do you place a company into Administration?

The following can apply for the appointment of an Administrator:

The company or its directors.

A holder of a qualifying floating charge (QFCH).

A creditor

When applying for the appointment of an Administrator, five business days notice must be given to any QFCH of the company. The QFCH then has the option of whether they wish to appoint their own Administrator. This will take preference over the directors’ choice.

Notice of the appointment of an Administrator is filed with the court with the written consent of all QFCHs and the consent f the proposed Administrator.

The appointment of the Administrator is effective from the date and time that the above notice is filed with the court.

There is then a full moratorium on the company.

What are the duties of the Administrator?

To achieve the three main aims of Administration in order of priority. This can include continuing to trade the company or opting for a total shut down.

To complete an investigation into the company’s affairs and submit a report to the Department of Trade and Industry.

To protect the interest of all creditors as a whole. The practice of being “the bank’s man” has now changed and the Administrator has a duty to all creditors and not just his appointer.

Administrative Receivership:

It is the Government’s intention to end this previously popular form of corporate insolvency.

Administrative Receivers are normally appointed by a bank or other lender which has, as security for a loan, the major part of a company’s assets. This lender is known as a ‘debenture holder’. The debenture must have been created before 15 September 2003.

If an Administrative Receivership is available to you, we can expand on the procedure and what is involved.

Company Voluntary Arrangement (CVA):

What is a CVA?

This procedure enables the directors to put proposals to creditors to settle or compromise their debts through a formal arrangement which binds all creditors.

What is the purpose of a CVA?

The procedure is usually used when the company is viable and can continue its business but has current debt problems

Unlike other insolvency processes, it allows control of the company to remain with the directors who can continue to trade, although the arrangement is under the control of an IP who acts as Supervisor.

How do you place a company into CVA?

The directors will prepare a proposal to put to their creditors with the assistance of a licensed IP who is known as the Nominee.

The proposal can make any number of suggestions to creditors. However, in practice the directors must offer the creditors a better outcome than they would expect to receive if the company was to be placed into another insolvency procedure.

The Nominee will report to the court as to whether in his opinion a meeting of creditors should be held in order to consider the proposals.

The proposals are sent to creditors for their consideration and a creditors meeting is called.

The creditors may approve, change or reject the proposal. If 75% in value of the creditors voting at the meeting agree to the proposal, it is binding on all creditors.

If the proposal is approved, the Nominee becomes the Supervisor and implements the arrangement under the proposal.

If there is pressure from creditors or an impending petition, a moratorium can be sought at the outset which will protect the company and its assets.

What are the duties of the Nominee/Supervisor?

Nominee

To assist the directors in preparing a viable proposal to put to their creditors.

To report to the court on the likelihood that the arrangement will be successful.

To make an application for a moratorium if appropriate.

Supervisor

To ensure that the directors adhere to the terms of the arrangement.

To agree creditors’ claims.

To collect in funds and distribute the same to creditors.

Compulsory Liquidation (CL):

What is CL?

A CL is a court-driven process, usually begun by a creditor issuing a winding up petition.

The court has to be satisfied that the company against which the winding up petition has been issued is insolvent.

As soon as a winding up order is made, the Official Receiver, who is a civil servant, becomes Liquidator of the company.

An independent licensed IP may subsequently be appointed Liquidator if there are sufficient assets of the company to be realised.

If a creditor of the company specifically wishes that a particular IP be appointed Liquidator, they can make this request to the Official Receiver who will call a creditors meeting. The appointment will take effect if 50% of creditors in monetary value vote in favour.

What is the purpose of a CL?

To appoint a responsible person who has a duty to collect the company’s assets and distribute them to creditors.

What are the duties of the Liquidator?

The compulsory Liquidator’s duties are similar to those in a CVL.

However, the Official Receiver remains responsible for investigating the company’s affairs and submitting the report to the Department of Trade and Industry.

Options available if a petition has been presented against your company:

Pay creditor who has issued petition – however, it is very important that this is done before the petition is advertised. Once the petition has been advertised, your bank will freeze your accounts. Also it will bring the petition to the light of other creditors. So whilst you may pay off the petitioning creditor, any other creditor owed money can be attached to the petition.

Defend the petition

Put a proposal to your creditors under a Company Voluntary Arrangement (see below)

Do nothing.

NB: Remember – each case is different. It is therefore essential that you obtain professional advice as soon as you are made aware of a pending petition or before the situation has been allowed to get this far.

Creditors’ Voluntary Liquidation (CVL):

What is a CVL?

Liquidation is the process whereby a company’s existence is ended, its affairs wound up and its assets realised.

This occurs when the shareholders, usually at the directors’ request, decide to put a company into liquidation because it is insolvent.

This means the company cannot pay it’s debts as and when they fall due or it has more liabilities than assets.

What is the purpose of a CVL?

To appoint a responsible person (the Liquidator) who has a duty to collect the company’s assets and distribute them to its creditors.

Allows directors to deal voluntarily with their company’s insolvency, rather than leaving the matter to creditors to enforce liquidation through the courts.

Directors can strive to minimise their potential personal liability.

How do you place a company into CVL?

The directors will instruct a licensed insolvency practitioner (IP) to assist them in drafting the necessary documentation to place the company into CVL.

A board meeting of the company is held to summon meetings of shareholders and creditors.

A shareholders meeting is held to pass an extraordinary resolution stating that the company cannot by reason of its liabilities continue to trade and it should be voluntarily wound up.

An ordinary resolution is also signed appointing an IP as Liquidator. This can be the IP who assisted the directors in preparing the documents or an IP of the shareholders choice.

The company is now in liquidation.

A meeting of the company’s creditors is held up to 14 days following the shareholders meeting, although in practice this will follow straight after.

A statement of the company’s affairs and report on the history of the business and the causes of failure is presented to the meeting. Creditors will also vote to determine whether or not they support the shareholders’ nominated Liquidator. If not, a Liquidator of the creditors’ choice is appointed.

At this meeting, three to five creditors may agree to act as members of a liquidation committee to oversee the liquidation.

What are the duties of the Liquidator?

To realise the assets of the company

Investigate the cause of the company’s failure and submit a report to the Department of Trade and Industry on the conduct of the directors

To agree creditors’ claims and, if funds available, make a distribution

To act in the best interest of all creditors at all times.

Members’ Voluntary Liquidation (MVL):

What is a MVL?

An MVL is the process whereby the existence of a solvent company is ended, its affairs wound up and its assets realised.

This occurs when the shareholders, usually at the directors’ request, decide that the company has come to the end of its useful life and wish for its affairs to be concluded.

This means the company can or will pay all its debts within 12 months of liquidation

It is a legal requirement that a licensed insolvency practitioner is appointed the Liquidator even though the company is solvent.

What is the purpose of a MVL?

To appoint a responsible person (the Liquidator) who has a duty to collect the company’s assets and distribute them to its shareholders.

Allows the affairs of the company to be properly concluded and for the company to be removed from the register at Companies House.

A company that is dissolved by Companies House can be reinstated up to 20 years after the date of dissolution. The time limit for reinstating a company which has been wound up in a MVL is only six years. This limit is of particular importance if there is a potential for claims against the company at a later date ie: building companies.

How do you place a company into MVL?

The directors will instruct a licensed insolvency practitioner (IP) to assist them in drafting the necessary documentation to place the company into MVL.

A board meeting of the company is held to summon meetings of shareholders.

The majority of directors will swear a Declaration of Solvency which is a statement of the company’s assets and liabilities.

A shareholders meeting is held to pass a special resolution stating that the company should be wound up.

An ordinary resolution is also signed appointing an IP as Liquidator. This can be the IP who assisted the directors in preparing the documents or an IP of the shareholders choice.

The company is now in liquidation.

No creditors meeting is held and no liquidation committee can be formed.

What are the duties of the Liquidator?

To realise the assets of the company.

To distribute funds to shareholders.

To ensure the company has tax clearance before concluding the liquidation.